Financing Your Home

Although some people can buy a home with cash, the vast majority will need a home loan or mortgage. The process can be complicated and time consuming. However, we will work with you to explain the steps and make sure that the process goes smoothly – and that you get the home loan with the best rates and terms for you.

How do I get pre-approved for a loan and why is it important?

Before beginning to shop for homes in Minneapolis, the first step is to get “pre-approved” for a home loan. Pre-approval means that you’ve met with a home loan officer or broker and discussed your plans, reviewed your credit history and been approved for a specified amount. Once you’ve been pre-approved, you will receive a pre-approval letter that will be very helpful once you are ready to make an offer on a property.

There’s a difference between pre-qualified and pre-approved. Getting pre-qualified is an informal evaluation of your financial situation without verification of the facts. Therefore, being pre-qualified does not carry much weight. Being pre-approved will require supplying documentation and additional information for verification.

The reason that having a pre-approval letter is important is that the seller and the seller’s agent will want to confirm that you have the financial ability to complete the purchase after your offer has been accepted.

There are many sources for a home mortgage including banks, home loan companies, brokers, savings and loans, etc. Any of these can qualify you and provide pre-approval letters. While we do suggest that it’s prudent to check with more than one source for financing, we also suggest that you limit the number. The market leaders will provide very comparable loan options. You will be best served by sticking with the strong, well known, reputable suppliers of home mortgages. After all, not only are you counting on them to come through with the loan and do it properly, but you will have to deal with them for the life of the mortgage.

Although a pre-approval letter is a strong indication of your ability to secure the loan, it is non-binding. In the event that your circumstances were to change prior to the actual loan being confirmed, you could fail to secure your loan due to those changes. If you’re turned down for credit, you may want to request a copy of your credit report from one of the credit report companies.

What are the actual costs of owing a home?

Mortgage – A mortgage is a home loan that will include specific terms regarding the amount, the interest rate and the number of years. The payments will be amortized so that you will pay a consistent amount over time that will include payments on both the principal and interest. Principal is the actual amount that you borrowed for the home. The interest is what the lender charges for the use of the money over time. In the early years, most of your mortgage payment will be for interest. Toward the end of the term, most of the payment will be to reduce the remaining principal.

Taxes – Taxes are charged by the local government to pay for a variety of items including schools and maintaining infrastructure of your community. These taxes are based on an assessed value of your home. Although you have the option to pay them yourself without including a prorated portion in your monthly mortgage payment, many people choose to include this cost for the sake of convenience.

Association Fees – The fees that you pay will be determined by the Association running your building or development. This money is used for the maintenance of the building, the landscaping, common areas and general maintenance.

Private Mortgage Insurance – When you finance your home with a loan that exceeds 80% of the purchase price, lenders will require that you purchase Private Mortgage Insurance (PMI). This insurance is protection for the lender in the event of default by the borrower. When your principal has been reduced to less than 80% of the value of your home, you can eliminate this insurance and avoid the ongoing expense.

How do I find a good lender?

As you begin the search for the home loan that will be best for you, you should understand that there are different types of lenders. They include direct lenders and brokers. Direct lenders have money to lend and can make the final decisions for your loan “in house”. Brokers are intermediaries that will search a number of lenders on your behalf to find a program that is best for you. Both direct lenders and brokers are very competitive for your home loan business – and will be very resourceful in putting together an attractive loan proposal. There are advantages to both and it is prudent to shop and compare. However, we strongly recommend that you choose to work only with reputable lenders that will be able to provide good service and deliver exactly what they promise. We have seen clients that have been unable to close on their home due to questionable practices on the part of the brokers. We will be happy to provide a number of proven lenders and brokers for your consideration and evaluation – and assist you with the comparisons of their proposals.

How does the loan process work?
Glossary of Terms